When goods produced in monopolistic markets become inputs to produce other goods,
A) prices end up being equal to average costs.
B) prices rise, but by less than if the input was competitively priced.
C) prices rise by more than if the input was competitively priced.
D) everyone is worse off.

Question

Quizplus · Accepted Answer

When goods produced in monopolistic markets become inputs to produce other goods, the prices of these goods rise by more than if the input was competitively priced. This is because the monopolistic producer has some power to influence the price of the input, which they use to their advantage by charging a higher price than they would in a competitive market. As a result, the cost of production for the final goods increases, leading to higher prices for consumers. Thus, everyone is worse off due to the inefficiencies caused by monopolistic pricing.

When Goods Produced in Monopolistic Markets Become Inputs to Produce